It is human nature to focus more on the present than on the future, which is in line with our basic instinct of survival.  

We focus on the present because that is where “life happens” and where we experience feelings such as pleasure, pain, anxiety, and peace. Every day we face cost-benefit tradeoffs that not only impact our lives today, but potentially in years to come. When faced with tradeoffs, because of our nature, we often select those things that bring immediate gratification.  But we may just be delaying its cost into the future.  

Investing Tradeoffs 

Perhaps the most frequent and material tradeoff investors face is whether to sell when markets go or remain disciplined to their investing strategy even as account values go down. The former is easy, the latter requires conviction and perseverance. The tradeoff comes down to emotional comfort today vs. long term comfort in the future. 

“The real key to making money in stocks is not to get scared out of them.”  

– Peter Lynch 

Smart Today May Not Be Smart Tomorrow 

We tend to extrapolate the present into the future, as if things will never change. When times are good, we feel good and may underestimate the risk. When things are bad, it’s about how much worse things are going to get – especially when you read exaggerated headlines that feed into the doom and gloom. 

But things change – they always do. We don’t know when or what may cause the change, but markets and economies are cyclical. What may seem “smart” today could end up being unwise and costly down the road. That is why your plan is so important. It is the anchor that helps us bridge the present to the future.  Your plan helps you ensure that the decisions you make today will be in your best interest tomorrow.

© The Behavioral Finance Network